Best Efforts


DEFINITION of 'Best Efforts'

An agreement in which an underwriter promises to make a full-fledged attempt to sell as much of an initial public offering as possible to the public. Best effort agreements are used mainly for securities with higher risk, such as unseasoned offerings, or in less-than-ideal market conditions.

BREAKING DOWN 'Best Efforts'

Best efforts relieve underwriters from responsibility for any unsold inventory in the event that they are unable to sell all the securities. The underwriter does not guarantee that it will sell the entire IPO issue in a best efforts agreement. Such an agreement limits the underwriter's risk, but also limits the underwriter's upside because it receives a flat fee for its services.

Underwriters and issuers can handle IPOs in different ways. In contrast to a best-efforts agreement, a bought deal requires the underwriter to purchase the entire IPO issue and the underwriter's profit is based on how many shares it sells, and the spread between the discounted purchase price and the sale price of the shares to the public.

  1. Distributing Syndicate

    A group of investment banks that work to underwrite and sell ...
  2. Agent

    1. An individual or firm that places securities transactions ...
  3. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs ...
  4. Underwriting

    1. The process by which investment bankers raise investment capital ...
  5. Firm Commitment

    1. A lending institution's promise to enter into a loan agreement ...
  6. Unseasoned Security

    A financial instrument that has only recently been made available ...
Related Articles
  1. Insurance

    Behind The Scenes Of Your Mortgage

    Four major players slice and dice your mortgage in the secondary market.
  2. Retirement

    IPO Basics Tutorial

    What's an IPO, and how did everybody get so rich off them during the dotcom boom? We give you the scoop.
  3. Chart Advisor

    Now Could Be The Time To Buy IPOs

    There has been lots of hype around the IPO market lately. We'll take a look at whether now is the time to buy.
  4. Stock Analysis

    GoPro's Stock: Can it Fall Much Further? (GPRO)

    As a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
  5. Stock Analysis IPO: Is it a 'Buy' or Should You Pass?

    Demand for relationships is always high. Now you will have a way to directly invest in the relationship market. But is it priced fairly?
  6. Stock Analysis

    Toys 'R' Us Stock Doesn’t Exist: Here is Why

    Learn why investors cannot trade stock in toy retailer Toys 'R' Us. This privately traded company could be a hot IPO candidate for the future.
  7. Stock Analysis

    If You Had Invested in Qualcomm Right After Its IPO

    Find out about how much you would have if you had bought 100 shares of Qualcomm during its initial public offering and the amount you would receive in dividends.
  8. Markets

    Why Are Companies Taking Longer To Go Public?

    Learn why private companies are waiting longer to have their IPOs. Understand why it may be more advantageous for a company to stay private.
  9. Markets

    Dell Stock Doesn’t Exist. Here is Why

    Learn why Michael Dell took his namesake company private after being publicly traded for 25 years. Discover why going private is helpful for the company.
  10. Stock Analysis

    If You Had Invested in Walmart Right After Its IPO

    Discover the value of your shares in 2015 if you had purchased 100 shares of Wal-Mart Stores, Inc. at its initial public offering (IPO) price.
  1. When is it beneficial for underwriters to sell stock below the minimum rate?

    It is beneficial for underwriters to sell stock below the minimum rate if it enables them to liquidate a position in a security ... Read Full Answer >>
  2. Do underwriters make guarantees to sell an entire IPO issue?

    Underwriters represent the group of representatives from an investment bank whose main responsibility is to complete the ... Read Full Answer >>
  3. When did Facebook go public?

    Facebook, Inc. (NASDAQ: FB) went public with its initial public offering (IPO) on May 18, 2012. With a peak market capitalization ... Read Full Answer >>
  4. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  5. What kind of assets can be traded on a secondary market?

    Virtually all types of financial assets and investing instruments are traded on secondary markets, including stocks, bonds, ... Read Full Answer >>
  6. Why would a company decide to utilize H-shares over A-shares in its IPO?

    A company would decide to utilize H shares over A shares in its initial public offering (IPO) if that company believes it ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  2. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  3. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  4. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  5. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
  6. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the legal sense may also refer to an exemption from liability ...
Trading Center